Future of Tech

The Top Angel Investors: Behind the Rankings

February 25, 2010

Who is Chris Dixon? Or, more to the point: Why is he the savviest angel investor in tech?

Bloomberg BusinessWeek partnered with startup tracker YouNoodle to analyze the performance of U.S. angel investors. The result is our first annual ranking of the top angel investors—chock full of surprises. Who knew that Amazon.com (AMZN) founder Jeff Bezos is such an active financier of early-stage companies? He ranks No. 7 on our list, helping 18 new ventures get off the ground, including Google and the popular micro-blogging site Twitter. Or that former Googlers, Chis Sacca (No. 8), Aydin Senkut (No. 13), and Andrea Zurek (No. 17)—not exactly household names—are best performers. The trio is among some 40 former employees of the search giant who have become angel investors seeding a new generation of startups and, just maybe, helping shape the next wave of innovation.

As a group, the top 25 angels on our list have made 972 investments—that number is likely higher since several investors declined to disclose all of their investments. Others say they are in the midst of closing deals they can't discuss. The companies they have invested in—740 startups—employ 328,698 people and have raised a total of $15.2 billion in venture capital, according to YouNoodle.

When it comes to ranking angel investors, one might easily assume that an early stake in Google would present such astronomical returns as to deal a crushing blow to all rivals. Google is one of the greatest engines of wealth creation the U.S.—Silicon Valley, for sure—has ever known. Since going public six years ago, the search giant has generated more than $170 billion for its employees, ex-employees, and investors. "For returns, you can't beat Google!" serial entrepreneur and investor Marc Andreessen (No. 6) wrote in an e-mail.

Not Always Blockbuster IPOs

No, you can't. So why isn't our ranking a three-way battle between Jeff Bezos, Andy Bechtolsheim (No. 10), and Ron Conway (No. 2)—all fortunate to have had the foresight to back two young entrepreneurs, Larry Page and Sergey Brin, who at the time didn't even have a name for what would become Google? Simply put, we're not measuring success in Googlean returns. As seasoned angel investors and venture capitalists know, the vast majority of startup companies fail or are acquired before they can even attempt that blockbuster IPO. Every investor—angel or VC—wants to be associated with companies that can reach the public markets and produce astronomical returns.

But that's rarely the case. In an e-mail, Bechtolsheim expressed his sober view of the chances for success among the new wave of former Google employees venturing into angel investing: "The only thing different about the Google mafia compared with other, similar periods in history, is that more money was made at Google by more people (and more money will be lost)."

Making mega-returns on an IPO is not the only factor driving these financiers—nor is it the only way they keep score. "You always hope for strong returns, but the companies that make you proud as an investor are the ones that produce that return by transforming the world for the better—technologically, socially, and economically," is how Peter Thiel, in an e-mail to Bloomberg BusinessWeek, described the investments that please him the most. He puts Facebook in that category, as well as a few other companies in his angel portfolio.

Culling the List

How did we pick the angels on our list? Over a four-month period, YouNoodle culled its database of 50,000 mostly privately-held companies to come up with the names of hundreds of angel investors. That list was eventually boiled down to some 40 names for final analysis. The list was then whittled down once again, this time to our 25 angels. YouNoodle sent every angel a list of their investments to review for accuracy. Ron Conway, Reid Hoffman, Jeff Bezos, Mike Maples, Max Levchin, Bill Joy, Joe Kraus and Eric Schmidt didn't respond.

Full Disclosure: YouNoodle is a two-year-old intelligence firm, specializing in data on startups and venture capital. That makes them a startup. And yes, they have angel investors. Two of YouNoodle's investors are on our list: Peter Thiel and Max Levchin, both co-founders of online payment service PayPal.

To qualify for the list, YouNoodle considered three major factors: the success of investments made by angels, their current leadership within the angel community, and the diversity and reach of their portfolios. The factors were given different weights, with a heavy focus on financial performance. The weighting and score used to come up with the ranking was developed by Amy Heineike, YouNoodle's director of science and a former Cambridge University mathematician.

Financial Yardsticks

To gauge the financial performance, YouNoodle assessed the portfolio of the angels as determined by the annual growth of investments, companies operating at valuations greater than $100 million, and the sale of any companies for more than $50 million. They also took into account funds raised to date and the number of employees—important measures of progress for nascent companies. "You don't get follow-on funding unless you're achieving something," says Sumon Sadhu, lead analyst of YouNoodle.

Then YouNoodle considered the leadership factor. The angel investment community is like a small town—everyone knows all the people in town, and some have higher stature in the community than others. The importance of each angel was measured by looking at the network of co-investments between angels, as well as at the ability to act as a bridge to other angel groups. From the perspective of an entrepreneur, the ability to attract other investors is critical.

Finally, YouNoodle looked at the diversity of each angel's portfolio to evaluate the range of industries and the countries represented. And that brings us back to Chris Dixon, who along with Caterina Fake (No. 20) is a co-founder of Hunch, a recommendation tool that uses machine learning to harness its users' knowledge and offer customized answers to their questions. Dixon's big return was his early investment in Skype, which eBay bought for $2.6 billion in 2005. Although he's not in the top tier when it comes to influence, he does rank No. 1 in terms of having the most diverse portfolio. That's why YouNoodle ranks Dixon as the savviest angel investor in tech—at least for now.